The effective duration of the pool was reported by the state auditor as 7.4 years in December
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Question:
The effective duration of the pool was reported by the state auditor as 7.4 years in December 1994.
- This high duration is the result of two factors:
- The average duration of individual securities of 2.74 years
- The leverage of the portfolio, which was 2.7 at the time.
- In 1994, interest rates went up by about 3%.
- The loss predicted by the duration approximation stands at $1.6 billion.
Related Book For
Governmental and Nonprofit Accounting
ISBN: 978-0132751261
10th edition
Authors: Robert Freeman, Craig Shoulders, Gregory Allison, Robert Smi
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